ORDER

1. The assessee has filed the present appeal against the impugned order dated 10.11.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2020-21.

2. The solitary grievance of the assessee is against the disallowance made under section 14A read with Rule 8D of the Income Tax Act Rules, 1962 (“the Rules”).

3. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a retailer of home improvement and building products. For the year under consideration, the assessee filed its return of income on 30.01.2021, declaring a total income of Rs. 34,08,79,540/-. The return filed by the assessee was selected for scrutiny, an assessee notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was noticed that the assessee has made investments in unquoted equity of subsidiary companies amounting to Rs. 48.37 crore. It was further observed that the assessee has claimed expenses on account of finance cost amounting to Rs. 31,69,44,000/-. Accordingly, the assessee was asked to show cause as to why the disallowance under section 14A of the Act should not be made. In response, the assessee submitted that it did not earn any exempt income during the year under consideration and therefore no disallowance under section 14A of the Act is unwarranted.

4. The Assessing Officer (“AO”), vide order dated 06.09.2022 passed under section 143(3) r.w.s. 144B of the Act, disagreed with the submissions of the assessee and made a disallowance of Rs. 43,42,160/- under section 14A read with Rule 8D of the Rules.

5. The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue and confirmed the disallowance made by the AO under section 14A read with Rule 8D of the Rules. Being aggrieved, the assessee is in appeal before us.

6. We have considered the submissions of both sides and perused the materials available on record. In the present case, it is undisputed that the assessee did not earn any exempt income and, accordingly, claimed no exemption under section 10(34) of the Act while filing its return of income. Such being the facts, the assessee claims that the disallowance under section 14A is unwarranted. We find that the Hon’ble Delhi High Court in Cheminvest Ltd. vs. CIT, reported in (2015) 378 ITR 33 (Del.), held that section 14A of the Act will not apply if no exempt income is received or receivable during the relevant previous year. We further found that the Hon’ble Bombay High Court in PCIT vs. Kohinoor Project Pvt. Ltd., reported in (2020) 121 Taxmann.com 177 (Bom.), rendered similar findings and dismissed the Revenue’s appeal on a similar issue. Since, in the present case, the assessee has not earned any dividend income, therefore, respectfully following the judicial precedents, cited supra, disallowance of expenditure under section 14A r.w.s. Rule 8D of the Income Tax Rules, 1962, is not sustainable.

7. We further find that vide amendment by the Finance Act, 2022, the non-obstante clause and an Explanation were inserted in section 14A of the Act to the effect that the section shall apply even if no exempt income has accrued or arisen or has been received during the year. We find that while dealing with the issue of whether the aforesaid amendment by the Finance Act, 2022, is prospective or retrospective in operation, the Hon’ble Delhi High Court in PCIT vs. M/s. Era Infrastructure (I) Ltd., reported in (2022) 288 Taxman 384 (Del.), held that the amendment by the Finance Act, 2022, in section 14A of the Act is prospective and will apply in relation to the assessment year 2022-23 and subsequent years. Thus, in view of the aforesaid amendment, the disallowance under section 14A of the Act, read with Rule 8D, is not